John Bogle's Latest Advice: A 'Gatekeeper' For Your Nest Egg

John Bogle, founder of The Vanguard Group and president of the Bogle Financial Markets Research Center, says the government should set standards to protect Americans' retirement savings.

Mark Lennihan
/ AP

Listen

Listening...

/

Originally published on May 3, 2013 10:14 am

Mutual funds, which have topped $13 trillion, are the way many Americans interact with the financial markets. You may have come across mutual funds when you set up an individual retirement account or a company-sponsored retirement account like a 401(k).

A "basket" of stocks, bonds or both, mutual funds are seen as safer to own than individual stocks. Having many in one basket spreads the risk, especially over time. But high fees, lack of diversification, or a focus on short-term gains can put your nest egg at risk.

John Bogle, founder of the Vanguard Group of mutual funds and a giant in the mutual fund industry, is known for his long-term approach to investing and for his faith in the stock market. Bogle, who is 83, is president of Bogle Financial Markets Research Center and the author of several books, including The Clash of the Cultures: Investment vs. Speculation.

He spoke recently with NPR's David Greene about the need for a government "gatekeeper" to protect Americans' retirement savings.

Interview Highlights

On whether mutual funds are a safe place for people to have their money

"It is as safe as the stock market, which is to say — to be quite blunt about it — not safe on any short-term basis. But when you look at the long term, look to what investment can I own for a lifetime. We know — as much as we can ever know — that stocks will do better than bonds over half a century, let's say.

"If you're in your 20s and you're going to be investing for the next 50 or 60 years, it's an excellent long-term bet. [But] in any given year? The market can drop 50 percent. I've seen now three of those 50 percent drops. They're all scary. At the bottom, you think they're going to last forever. But they don't."

On giving the government more of a role in limiting the kinds of funds that can go into retirement accounts

"Corporations have shifted risk from their own backs in the typical pension plan to the backs of the individual investors. We're basically moving risk from generally sophisticated institutions to gravely undereducated investors. So I think we need a regulation that limits access to the retirement plan system of this country to those that are doing their best to give shareholders a focus on long-term investment, on low cost, on broad diversification. ...

"I'm not a big believer in government regulation, but this is a little bit different. It's basically a gatekeeper to say that if we're entrusting the largest part of future savings of American investors — if you're going to enter that system by offering savings plans, thrift plans and IRAs — you've got to meet certain qualifications: You can't have very high fees; you've got to have a long-term focus. How do you get into that? Well, you say, 'Here are the rules' ... there's a way to do this, and we're going to end up doing that. I'm absolutely confident."

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

Millions of Americans are invested in the stock market. Some people may not even realize it. It might be part of your company's retirement plan. If you have an individual or a company-sponsored retirement saving account, like a 401(k), it's likely to include mutual funds.

Mutual funds are baskets of stocks or bonds or both. They're seen as safer than individual stocks because they spread the risk out, especially over time.

We recently spoke to a man considered a giant in the mutual fund industry. His name is Jack Bogle, he's founder of the Vanguard Group, one of the biggest fund companies in the world.

There is currently $13 trillion in mutual funds rate now. That is a whole lot of money. More so than ever Americans are relying on these types of investments to feel financially secured, to have money for college tuition. Is this a safe place for people to have their money?

JOHN BOGLE: It is as safe as the stock market, which is to say - to be quite blunt about it - not safe on any short-term basis.

GREENE: Mm-hmm.

BOGLE: But when you look at the long term, look to what investment can I own for a lifetime. We know - as much as we can ever know - that stocks will do better than bonds over half a century, let's say.

If you're in your 20s and you're going to be investing for the next 50 or 60 years, it's an excellent long-term bet. But in any given year? The market can drop 50 percent. I've seen now three of those 50 percent drops. They're all scary. At the bottom, you think they're going to last forever. But they don't.

GREENE: OK. While, investors can't really control which way the market goes, they can which mutual funds to buy. But even that's not all that easy. Jack Bogle says the government needs to do more to help Americans get the most out of their investments.

In the past, company professionals manage people's pensions, but the shift to 401(k)s means individuals have to make complex financial decisions about their own retirement.

BOGLE: Corporations have shifted risk from their own backs in the typical pension plan to the backs of the individual investors. We're basically moving risk from generally sophisticated institutions to gravely undereducated investors. So I think we need a regulation that limits access to the retirement plan system of this country to those that are doing their best to give shareholders a focus on long-term investment, on low cost, on broad diversification, not an easy thing to do.

GREENE: And that's the kind of thing that sounds very important for people like myself, who don't know a whole lot, who aren't that knowledgeable; this would be the government protecting me and letting me go on with my life and not having to worry about the details of all this.

BOGLE: That's exactly right. And, but it would take some kind - I'm not a big believer in government regulation, but this is a little bit different. It's basically a gatekeeper to say that if we're entrusting the largest part of the future savings of American investors - if you're going to enter that system by offering savings plans, thrift plans and IRAs - you've got to meet certain qualifications. You can't have very high fees, you've got to have a long-term focus. How do you get into that? Well, you say, here are the rules. They can't be, you know, like dollars and cents kind of things. But there's a way to do this, and we're going to end up doing that. I'm absolutely confident.

GREENE: Jack Bogle, this has been a pleasure. Thanks so much for joining us.

BOGLE: A pleasure for me too, David. Thank you.

GREENE: Jack Bogle is the founder of the Vanguard Group. He is also the author of "The Clash of the Cultures: Investment versus Speculation." Transcript provided by NPR, Copyright NPR.